Student-loan borrowers struggling to make payments as the coronavirus cripples parts of the U.S. economy will get a temporary break under the $2.2 trillion stimulus bill the Senate unanimously approved late Wednesday.
The Coronavirus Aid, Relief and Economic Security (CARES) Act lets student-loan borrowers take a six month break from making payments on their federally-backed student loans.
Until Sept. 30, borrowers will not be penalized for late payments. The CARES Act extends a two-month pause that President Donald Trump announced for student-loan payments last week. The federal stimulus bill will also hand out $1,200 checks to people under certain income limits, expand unemployment benefits, and provide relief to small businesses.
The temporary break on student-loan payments includes borrowers seeking to have their student loan debt forgiven through the Public Student Loan Forgiveness Program. That program allows borrowers who work in certain public or nonprofit sector jobs to have their federal student loan debt erased after making on-time payments for 10 years.
The CARES Act would allow them and other student loan borrowers to delay payments without facing an interest penalty. But that temporary benefit isn’t automatic, borrowers must request the deferment option from their loan provider.
Borrowers aren’t off the hook for any portion of their student loan debt burden. Some were hopeful that Democratic lawmakers would be able to pass a provision to cancel $10,000 in student debt per borrower over the course of the coronavirus-related national emergency.
The move to allow borrower to delay loan payments, “is like a Band-aid on a deep wound, the underlying situation remains unresolved,” said Andrew Housser, co-CEO of Freedom Financial Network, an online debt management company based in San Mateo, Calif.
Currently Americans collectively owe $1.5 trillion in outstanding student loan debt — that’s more than the total credit card debt as well as total auto debt, according to the New York Federal Reserve. 11.1% of total student debt is more than 90 days delinquent.
“Helping people mitigate the cycle of debt, especially those with crushing student debt, will help alleviate some of the pain of this sudden crisis, and importantly, will help people rebound once we have the crisis under control,” Housser said. “We don’t know when this will end, but we do know that when it does we need people to get back to work and start spending again in order to reinvigorate the economy.”
He added, “There is much more that should be done for student borrowers once this crisis is over, but this will help, no question.”
In addition to student-loan debt relief, the Senate agreed to create a $30.75 billion education stabilization fund, approximately 46% of which would be directed to colleges. $13 billion would go to primary and secondary school. Additionally the fund would provide grants to “local educational agencies that the State educational agency deems have been most significantly impacted by coronavirus,” the bill states.
The House of Representatives was expected to vote on the stimulus package on Friday. It is widely expected to pass.